You can earn 4% on your bank deposits and are considering a project that will cost $8,000 and offers an 8% return in one year. You have $3,000 to invest. What is the maximum interest rate
You could pay on a loan that would make this project acceptable?

Question

Quizplus · Accepted Answer

The project offers an 8% return, so you need to ensure the cost of borrowing does not exceed this return. You need to borrow $5,000 ($8,000 - $3,000). The maximum interest rate you can pay on the loan is the rate that makes the cost of the loan equal to the project's return, which is 10.4%.

You Can Earn 4% on Your Bank Deposits and Are